Download EAST ASIA IN THE NEW ECONOMY: OPPORTUNITIES AND

MAS-ESS ESSAY COMPETITION 2001
East Asia in the New Economy: Problems and Challenges
First Prize-Winner, Students Category
By
Gan Weiyang, Samuel
THE VIEWS IN THIS ESSAYS ARE SOLELY THOSE OF THE AUTHOR AND
SHOULD NOT BE ATTRIBUTED TO THE MONETARY AUTHORITY OF
SINGAPORE.
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Summary
The New Economy promises to be an economic revolution like no other. It
will completely transform the way we live, work and play. This essay first of
all examines what exactly constitutes the new economy. It then proceeds
to give a quick economic brief for East Asia, before analysing the various
opportunities and challenges facing the region in the New Economy.
Briefly, the New Economy provides a chance for developing East Asian
economies to make vast improvements in the living standards of their
people, and also for economies to identify and develop particular niches.
The rise of China as an emerging economic superpower is also examined.
This essay then explores an exciting proposition: Can East Asia become
the cradle of the New Economy? There are several obstacles, though, that
may hinder East Asia’s progress in the New Economy. Among them are a
shortage of skilled workers, the existence and widening of the “digital
divide”, the fact that some East Asian nations face more pressing social
and political problems, as well as cultural impediments.
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Introduction
Winds of change are once again sweeping across the globe. Just as
the Industrial Revolution effected major social and economic changes in
19th-century Europe and America, rapid developments in information and
communication technology (ICT) today and the consequent creation of a
New Economy are about to redefine the way we live, work and play.
There is no doubt that we are on the threshold of another major
economic revolution. Indeed, academic circles are currently abuzz with
insights into how the New Economy will affect our lives. So what exactly is
the New Economy? Ironically, for a term that is used so widely, there is no
clear definition as to what it really constitutes. However, there are certain
unmistakable characteristics that it possesses.
Firstly, the evolution of the New Economy is closely related to the
computer revolution and, of course, the Internet. Computers and the
Internet provide the engine that the New Economy is running on. They
have undeniably made businesses and production faster, cheaper and
much more efficient.
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Another important hallmark of the New Economy is that it is global
and not the economy of a nation. It signals a shift towards greater
economic integration, with countries becoming more economically
interdependent on one another. Old barriers to trade and economic growth
are also being removed, providing for the effortless transfer of finance,
capital and labour from country to country.
The impact of the Industrial Revolution was restricted to western
Europe and the northeastern United States due to limitations in transport
and communications. However, things will be very different this time
around thanks to the rapid pace of globalisation. Every corner of the planet
will have a part to play in the New Economy. The unprecedented changes
that the New Economy will bring about will hence be on a global scale, and
this is what will make the New Economy stand out from earlier revolutions.
Economic Brief for East Asia
Before examining the opportunities and challenges facing East Asia
in the New Economy, it is useful to have a quick look at the current
economic situation in the region. East Asia as a region is unique in a sense
that it has countries at every point along the development spectrum.
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At the top end of the spectrum is Japan, already a highly-developed
economy and, based on Gross Domestic Product (GDP) figures, the
second largest economy in the world. Next come the Newly Industrialised
Economies (NIEs), comprising South Korea, Taiwan, Hong Kong and
Singapore. These countries are not far away from achieving developed
status. Then we have China, very much an economy in transition but
nonetheless possessing massive economic potential, as well as countries
like Malaysia and Thailand which are making large strides in economic
development. At the other end of the spectrum are nations such as
Cambodia, Burma, Vietnam and North Korea, which unfortunately are still
in the early stages of development.
The New Economy can thus be expected to have varying impacts on
different East Asian countries, depending on the degree of development of
their economies.
Opportunities For East Asia in the New Economy
To improve living standards
The New Economy provides an opportunity for developing East
Asian countries to leapfrog stages of development and catch up with the
developed world. The key for these countries is to harness the benefits of
information technology (IT) to develop their economy and labour force.
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Their governments must be prepared to allocate substantial funds to build
the necessary infrastructure, such as adequate power sources and
communication links. Emphasis must also be placed on education and
training, since a steady supply of trained IT workers is essential for New
Economy industries to prosper.
Education also empowers the population with the necessary
knowledge to succeed in the New Economy. It represents the best hope
for the rural poor to break out of the poverty cycle and work towards a
higher standard of living for themselves and their families. Hence
governments must ensure that basic education is free or extremely
affordable even for the poor, such that nobody is denied the right to an
education. Adequate study loan facilities should also be available to those
who wish to pursue a higher education.
To identify and develop niches in the New Economy
It is essential for East Asian economies to identify and develop
niches in the New Economy. This is especially true for relatively small
economies such as Singapore, since these countries simply do not have
enough resources to be on the cutting edge of all sectors of the New
Economy. Hence the need to specialise; it is definitely better to be a world
leader in a particular industry than a jack of all trades.
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It is heartening to note that some East Asian governments have
already taken positive steps in this direction. Taiwan, already the leading
PC and laptop manufacturer in the world, has identified the biotechnology
sector as an industry where it can potentially become a world player. As
such, the Taiwanese government recently announced a series of
measures to boost the biotechnology industry. These include tax
incentives, a NT$50 billion fund for biotechnology research, and building
three biotechnology parks on the island.
Singapore is determined to make its mark on the wafer fabrication
and life sciences industry, now that it is beginning to lose its lead in disk
drive manufacturing as companies shift their production facilities to more
cost-efficient countries. And plans are already in place to achieve this goal.
Singapore has leveraged on its technological lead to build several worldclass wafer fabrication facilities, which have stringent requirements such
as a dust-free environment. A multi-billion dollar fund has also been set up
for research into the life sciences.
China: The emerging economic superpower
In China, East Asia has arguably the fastest-growing economic entity
in the world today. It seems only a matter of time before China emerges as
a world economic superpower. The World Bank estimates that, on the
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basis of national purchasing power, China has already surpassed
Germany to become the third-largest economy in the world. It could move
into second place ahead of a stagnant Japan within the next 10 years. And
some economists predict that if China maintains an annual growth rate of 7
percent compared with 3 percent in the United States, it will supersede the
United States to become the largest economy by 2020-2030.
The facts are compelling. One cannot deny that China enjoys
advantages in many areas. Its large population means it can tap into a
sizeable talent base. It has a large land area, and therefore its economic
development will not be constrained by land shortages. Furthermore,
China’s imminent entry into the World Trade Organisation (WTO) will
undoubtedly open up new economic and trading opportunities for the
country.
However, there exists several impediments to China’s emergence as
an economic superpower. China is not a democracy, while all other leading
economies clearly are. It remains to be seen how this will affect China’s
economic development. China is also far from being a true market
economy despite its impressive reforms. And China is a poor country. Its
per capita purchasing power is only about US$2000, less than one-tenth
that of the industrialised nations, and 350 million Chinese still live below
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the poverty line as defined by the World Bank. This may scupper hopes of
a strong domestic market for China-made goods.
The onus is on the Chinese government to remove these obstacles
and smoothen China’s path towards economic superpower status.
Undeniably, significant progress has been made. It has been said that
China is communist “in name only”. China’s private sector is growing
rapidly. It is estimated that the private sector makes up almost 70% of
China’s economy today, compared with 10% in the 1980s. And China
hopes to build a vibrant domestic capital market for New Economy
industries to prosper. China’s version of the NASDAQ, called the “2nd
Board”, will be launched early next year. This Shenzhen-based stock
market will cater mostly to private high-tech companies.
However, a lot more needs to be done for China to fulfill its massive
economic potential. In particular, the Chinese government must resolve to
improve the standard of living of its people, especially that of the poor
living in the countryside. Rural areas must be equipped with basic
amenities such as water, electricity and telephone lines. If possible,
computers and the Internet should also be made available. This will allow
the spread of knowledge and relevant information, such as medical advice,
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to rural communities. And most importantly, the people must be equipped
with the necessary skills to find jobs in the New Economy.
East Asia: cradle of the New Economy?
The emergence of the New Economy has thrown up an exciting
proposition for East Asia: Can it become the cradle of the New Economy?
And my answer to this question is, why not? Admittedly, North America
and perhaps Europe are ahead of East Asia at the moment. But I cannot
stress enough the enormous economic potential that East Asia possesses.
China, with its population of 1.3 billion, serves as a vast hinterland
for East Asian economies. As standards of living and per capita purchasing
power continue to increase in China, the country will in time become the
largest market in the world. This must surely spell good news for local
producers as well as China’s East Asian neighbours, who will then have a
ready consumer base to market their New Economy goods and services.
Furthermore, Japan, South Korea, Hong Kong, Taiwan and
Singapore are already highly developed economies and well-placed to play
a significant role in the New Economy. And with countries such as
Malaysia and Thailand continuing to nurture and develop their high-tech
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industries, the chances of East Asia becoming the centre of New Economy
activity look bright indeed.
Challenges Facing East Asia in the New Economy
Shortage of skilled professionals
While machines and physical resources determined productivity in
the industrial age, a skilled and knowledgeable workforce is the key to
success in the New Economy. Unfortunately, a shortage of skilled
professionals, especially in the field of IT, is threatening to curtail economic
growth in the New Economy. This situation is not unique to East Asia, with
the United States and Europe also facing the same problem. However, for
many East Asian countries, this problem is compounded by a “brain drain”
of their top talents to “greener pastures”, in particular Silicon Valley in the
United States. Clearly, East Asian governments urgently need to take
radical steps to reverse this trend and enhance their ability to compete for
IT talent from abroad.
The statistics make for compelling reading: Malaysia will require 15
000 more IT workers by the end of this year, South Korea will need 50 000
by 2002, Hong Kong 17 000 by 2005, and Thailand 800 000 over the next
15 years. Worryingly for East Asia, America has already taken steps to
address its shortage of IT professionals. The U.S. Congress recently
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passed a bill allowing U.S. companies to recruit 600 000 skilled foreigners
over the next three years. A significant proportion of these workers can be
expected to come from the region.
In my opinion, East Asian governments have to adopt a threepronged approach to ensure a continual supply of skilled labour for their
New Economy industries. Firstly, they must concentrate on developing
home-grown talent. This starts with a sound educational system, followed
by quality institutions of higher learning to equip students with the requisite
skills and knowledge for the New Economy. Positive moves have already
been made in this direction. China has launched its ambitious “Project 21”
plan, aimed at developing 100 universities into world-class institutions for
the 21st century. Hong Kong has launched a five-year strategy called “IT
for Learning in a New Era”, investing US$750 million in equipment and
training. Singapore, on a similar note, has put in place a US$2 billion IT
masterplan to equip all the country’s schools with computer and Internet
facilities.
Secondly, East Asian governments must strive to retain their local IT
talents. Currently, there is a worrying exodus of IT professionals from
developing East Asian nations to developed countries. A popular
destination is America’s Silicon Valley. Workers are attracted by the
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attractive pay packages, meritocratic culture and conducive working
environment that Silicon Valley offers. East Asian countries must provide
sufficient incentive to retain their best talents. For governments, this would
mean developing better infrastructure in cities and enhancing the quality of
life by reducing pollution and congestion for example. For companies, this
can mean offering higher salaries and benefits, as well as creating
pleasant work environments for employees.
Thirdly, East Asian countries must not be averse to the prospect of
hiring foreigners to complement the local workforce. Such a policy may be
politically sensitive, with sentiments running high among the locals that
foreigners dilute the country’s culture and identity. However, governments
must weigh this against the possibility of a stagnant economy, as
economic growth becomes unsustainable due to a shortage of skilled
labour. In East Asia, Singapore has been at the forefront of attracting the
best foreign talent. The Infocomm Development Authority of Singapore
(IDA) estimates that Singapore needs 10 000 more tech workers each
year, of which half will have to be met by importing foreign workers. Last
August, the IDA signed an unprecedented agreement with India’s NITT,
which operates training centres in four countries, to recruit 1 000 Asian IT
professionals a year for work in Singapore. More such tie-ups are also in
the works. It is worth noting, though, that Singapore may be able to
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implement such a radical policy because the PAP government is unlikely to
face severe political repercussions given its dominant political position.
Some East Asian governments face more pressing problems
There is little doubt that the New Economy is the economy of the
future. Hence, ideally, governments should concentrate their efforts on
building infrastructure and educating the population in order to reap the full
benefits of the New Economy. But reality bites. Often, governments have
to allocate substantial resources to address more pressing social and
political problems. They therefore neither have the time nor money to focus
on getting their economies into shape for the New Economy.
Sadly, several East Asian countries are faced with this predicament.
Indonesia is currently plagued by political unrest; the Philippines has to
deal with separatist violence and terrorist kidnappings; and Cambodia is
still suffering from the after-effects of the brutal Khmer Rouge regime.
There are also two major political hotspots in East Asia: the Korean
Peninsular, where North and South Korea are technically still at war with
each other, as well as the Taiwan Straits, which separates Taiwan and
China. These problems are definitely major stumbling blocks for the
countries concerned.
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The “digital divide”
The New Economy is very much a double-edged sword; while it can
potentially close the gap between the developing and the developed world
as explained earlier, it can also accentuate differences in the standards of
living of different countries. Related to this is the “digital divide”, the
perceived gap across and even within countries between those who are
computer-literate and those who are not.
For all the talk about globalisation and the far-reaching effects of
technology, the stark reality is that a large percentage of the world’s
population are too poor to benefit from technological advances. For
example, only 6% of the world’s population have ever accessed the
Internet, while half the people in developing nations have never used a
telephone. If nothing is done to improve their lot, the world’s poor are
unlikely to benefit from the New Economy. And far from bridging the
technological gap, the New Economy may serve to widen the “digital
divide”. The poorest levels of society are multiplying much faster than new
technologies can reach them. Meanwhile, technological advances are
boosting productivity in higher social strata at an even faster pace, making
the rich even richer.
The implications for policymakers are obvious. They must step up
efforts to bring computers and the Internet to the underclass. This is the
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first step towards improving the living standards of the poor and preventing
the widening of the “digital divide”. At the same time, the necessary
infrastructure must be built and the population growth rate must be
maintained at a sustainable level, in order that communities are able to
participate in and reap the full benefits of the New Economy.
Cultural impediments
There are also cultural barriers which may curtail the potential of
East Asia in the New Economy. The New Economy moves at electronic
speed, and ideally decision making powers should be granted to the lower
sectors of the business hierarchy. This allows decisions to be made quickly
and efficiently, thus enabling businesses to remain on the competitive
edge. However, many East Asian societies are staunchly traditional and
their businesses have rigid hierarchical structures. A challenge facing East
Asia is thus to break through this hierarchical control and trust middle-level
workers to make effective decisions on their own.
There is also a general consensus that East Asia lacks an
entrepreneurial culture which is an essential ingredient in the New
Economy. The existence of such a culture was a major factor in Silicon
Valley becoming the hub of high-tech economic activity. As Senior Minister
Lee Kuan Yew pointed out, East Asia “has yet to nurture a critical mass of
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technopreneurs”. And to compound this lack of enterprise in East Asia, the
most dynamic Asian entrepreneurs are often lured abroad, a fact illustrated
by the statistic that 30% of Silicon Valley start-ups are headed by Asians.
Governments
can
play
an
active
role
in
encouraging
entrepreneurship by fostering a conducive business climate and offering
start-up companies tax incentives. They can also provide financial aid to
new companies. For example, Singapore has set up a $1 billion
technopreneurship fund to provide capital to deserving high-tech start-ups.
East Asia can also draw valuable lessons from American venture
capitalists, who nurtured numerous Silicon Valley firms through the difficult
early years.
Conclusion
In conclusion, the New Economy is without much doubt the economy
of the future. SM Lee summed up the New Economy perfectly with the
following quote: “The revolution is going to be real. It is going to transform
the way we do business, the way we live, the way we buy and sell, and the
way the world is.” The New Economy has brought with it several exciting
opportunities for East Asia and, at the same time, its fair share of
challenges. Will East Asia emerge as a major force in this new global
economic order? Or will the New Economy prove to be a false dawn for the
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region? No one is able to tell as yet, but one thing for certain is that
policymakers have a major role to play in shaping the economic destiny of
the region.
References
Cheng, Allen (2001) “Webfiles: China is Communist in Name Only”
[Online]
http://www.asiaweek.com/asiaweek/daily/0,8773,130318foc,00.html
Bergsten, Fred (1998) “The New Agenda with
http://www.iie.com/policybriefs/news98-2.htm
China”
[Online]
Chanda, Nayan (2000) “Knowledge Gaps: The Tug of War for Asia’s Best
Brains” [Online] http://www.feer.com/2000/_0011_09/p038innov.html
Ghahremani, Yasmin (2001) “Heroes of the Digital Divide” [Online]
http://www.asiaweek.com/asiaweek/technology/article/0,8707,13216
5,00.html
Websites
http://www.thecore.nus.edu.sg/writing/ccwp10/benny/paper2/title.htm